Goldberg Redux — Sadly, I

Goldberg Redux — Sadly, I learned of my mention by Goldberg, and of his further ramblings, only just as I was embarking on my holiday trip and I was unable to reply. Although the topic is rather stale, by blog standards, I do want to say a few things. And I will say them tomorrow.

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“Picture income distribution as a number line fixed at zero at one end and continuing unbounded on the other end. The ratio of the upper 5% band to the lower 5% band will always be increasing, given that the the lower 5% band will always include zero, and a lot of data points very near zero.” – Ken Wabel

Um, no. The line is not fixed at zero, and should not be. In pre-classical economic theory (to give it an anachronistic but suggestive name, Malthusian economics), the lower bound of the line is fixed at ‘subsistence’ (i.e. the income necessary to afford to buy enough food to make it to tomorrow). Actually, if subsistence were truly the level at which the lower bound of the line were set, the lower classes would never experience any population growth (lacking as they then would the necessary chemical energy to produce children in excess of the replacement rate), which they have for most of recorded history. Classical economics (Ricardo, Smith, etc.) consisted of several competing attempts to explicate a theory that could account for this observed fact.

Sometimes, of course, the lower bound falls below subsistence *but still above zero* (e.g. the Irish potato famine), usually because of natural disaster, but more recently (as in the case of the Irish famine) also sometimes because of ‘economic mismanagement’. It is an interesting question as to whether such ‘mismanagement’ implies a manager. The prevailing capitalist orthodoxy claims that *correct* management implies the *lack* of a manager, but this is far from clear to me theoretically or empirically (though Hayek does make a strong theoretical case).

In any case, it is by no means clear that we (as a polity or as a species) cannot (either through central planning, [which admittedly doesn’t have a great track record] or through some clever manipulation of the market’s ‘rules of the road’) ensure that the lower bound of that line is *much higher* than mere subsistence. How much higher is primarily a political question. As DMonteith aptly puts it:

“Not many people have a problem with an unequal distribution of surpluses. Again, what’s at stake here is the definition of “surplus” versus what constitutes basic needs. There’s a moral/normative argument that, for instance, some level of access to health care should now be defined as a basic need, not as a surplus good subject to unequal distribution.”

Incidentally, the key to not utterly failing to understand that last sentence is the phrase ‘some level’. Even Hayek agreed with this sentiment. (I kind of hate myself for writing that last sentence, but, well, it’s both true and apropos.)